Expect More ECB Easing

The chances of an expansion of eurozone monetary policy by the end of 2015 have increased significantly, with a very dovish ECB press conference on October 22 in which President Mario Draghi hinted strongly that more easing could be on the cards as soon as December.

While this is in line with our view that the ECB would expand and extend its ongoing EUR1.1trn quantitative easing programme by the end of 2015 if not early 2016, Draghi and the Governing Council have upped the ante by discussing the possibility of further cuts to the deposit rate.

That rate has been at -0.2% since September 2014, at which time Draghi called it the 'lower bound' – but apparently, the ECB has reconsidered its stance on negative interest rates in light of weak price pressures that look to keep inflation well below the 2.0% target through 2017 (according to the forecasts of the ECB itself).

While of course incoming inflation data will be crucial to the ECB's ultimate decision, the bank seems clearly committed to further easing. Furthermore, Draghi's talking down of the euro reinforces our bearish view on the currency, and we hold a USD1.07/EUR average forecast for 2016 (versus USD1.10/EUR in 2015).